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Using value innovation to create competitive advantage: Part 2.

Article Excerpt
A hospital known and respected for its cardiac and orthopedic surgery programs realizes it cannot rely on only two successful programs to continue to be profitable. It decides to expand its surgical service line by offering bariatric surgery.

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A prolonged battle ensues between competing hospitals for these patients. The result is the hospital's new bariatric program gains some patients, but does not realize the profits that were projected.

In my May/June column (The Physician Executive, Vol. 31(3) May/June 2005), I presented this scenario and discussed how hospitals and medical practices often build strategy around trying to match and beat competitors. This approach, however, is not optimal because too often competitors emulate each other with strategies that produce only incremental improvements in cost or quality.

A business's departure from this thinking can be seen in what is called a value curve. (1) A value curve is a graphical depiction of the way a business configures its offerings to customers and the relative value to the consumer.

According to conventional competitive strategy, and industry's value curve follows one basic shape. Competitors try to improve value by offering a little more or a little less, but don't change the shape of the curve. Successful providers have learned that developing...